4 August 2017 Financial Services Banks

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1 4 August 2017 Neutral (Maintained) DBS Target Price: Price: SGD20.50 SGD22.08 Sequentially Flat NIM Market Cap: USD41,512m Bloomberg Ticker: DBS SP DBS 2Q17 results (announced this morning) were in line with expectations. 1H17 core net profit was up 4% YoY. The positives include relatively stable asset quality (NPL ratio only up marginally to 1.5%), sequential loan expansion of 1.5%, and higher interim dividend of SGD0.33/share. The negatives include a sequentially flat NIM (unlike the widening NIMs recorded by its two peers). We will review our earnings forecasts and TP after the analyst briefing to be held later today. DBS released its 2Q17 results this morning. Highlights for 2Q17: i. 2Q17 net profit was SGD1,130m. Excluding one-time items, 2Q17 net profit of SGD1,140m was down 6% QoQ. 1H17 net profit of SGD2,375m represented 53%/50% of ours and consensus 2017 net profit forecasts respectively. We rate the results as in line; ii. 2Q17 net interest margin (NIM) of 1.74% was unchanged QoQ, and 13bps narrower YoY. The YoY decline was due to softer SGD interest rates; iii. 2Q17 credit cost (specific loan allowances) of 40bps was higher than 1Q17 s 26bps; iv. 2Q17 loan loss coverage was 100%, vs 1Q17 s 103%; v. 2Q17 loans were 1.5% higher QoQ, with strength from the manufacturing and building & construction sectors. Loans were up 6.4% YoY; vi. The Board declared 1H17 dividend of SGD0.33 per share, up 10% from the recent half-yearly payout. The scrip dividend will apply. More highlights after the analyst briefing to be held later today. Figure 1: 2Q17 results announced 4 Aug were in line with expectations FYE Dec (SGDm) 2Q16 1Q17 2Q17 QoQ% YoY% Comments Net interest income 1,833 1,831 1, Q17 NIM was flat QoQ at 1.74%, unlike the sequential widening recorded by its other two peers Non-interest income 1,086 1,405 1,036 (26.3) (4.6) PIOP 1,634 1,978 1,642 (17.0) 0.5 Impairment charges (366) (550) (304) (44.7) (16.9) Core net profit 1,051 1,210 1,140 (5.8) 8.5 Source: DBS data 2Q17's specific credit cost of 40bps was higher than 1Q17's 26bps, but 2Q17 allowances fell QoQ Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Reported net profit (SGDm) 4,454 4,238 4,506 4,639 5,017 Net profit growth (%) 10.1 (4.8) Recurring net profit (SGDm) 4,318 4,238 4,506 4,639 5,017 Recurring EPS (SGD) BVPS (SGD) DPS (SGD) Recurring P/E (x) P/B (x) Dividend Yield (%) Return on average equity (%) Return on average assets (%) Our vs consensus EPS (adjusted) (%) (1.3) (6.5) (9.6) Source: Company data, RHB Analyst Leng Seng Choon CFA leng.seng.choon@rhbgroup.com See important disclosures at the end of this report Powered by the EFA Platform 1

2 RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Investment Research Disclaimers RHB has issued this report for information purposes only. This report is intended for circulation amongst RHB and its affiliates clients generally or such persons as may be deemed eligible by RHB to receive this report and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. 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